White Paper Value Unlocking Options for Stressed ...deeshapowersolutions.com/White Paper_Value... · • IBC and NCLT Process White Paper – Value Unlocking Options for Stressed

2nd May 2018

White Paper – Value Unlocking Options for Stressed Conventional and RE Power Assets

Conference at Hotel Orchid, Mumbai

Initiative By

Acknowledgements

We wish to acknowledge noble contribution of each and every industry stakeholders for this white paper on

“Value Unlocking Options for Stressed Conventional & RE Power Assets” and we take this opportunity

to thank them. While working on engagements related to stressed power assets, we interacted with different

stakeholders and each one of them had a point of view for resolution of power sector NPAs. We started a

movement a year back to bring stakeholders together and now, we are pleased to bring 2nd edition of this

event and white paper. We interacted with 18+ decision makers across banks, ARCs, special situation funds,

IPPs, OEMs, solution providers and experts. We would like to thank each one of them for their learned inputs

1

IPPs, OEMs, solution providers and experts. We would like to thank each one of them for their learned inputs

and constructive suggestions.

It is our sincere objective to share the thought process with people at large and seek consensus on resolution.

We hope that many hands may join and a formidable force will be created. It will be a war between “India”

and “stressed assets”. And we are 100% sure that India will win eventually…

Jai Hind!!!

Shardul Kulkarni, MD& CEO

Deesha Power Solutions Pvt. Ltd

Extensive stakeholder consultation has been carried out

STAKEHOLDER NAMES (ALPHABETICAL ORDER)

1. Aditya Birla

2. Avendus Capital

3. Axis Capital

10. IL& FS PE

11. International SSF

12. India Resurgence ARC

A-I I-Z

2

4. BHEL

5. BoB

6. BoI Merchant Bankers

7. Brescon Corporate

8. Grand Thortan

9. ICICI

13. IREDA

14. Legasis

15. Kotak Infra Fund

16. Large Infra Fund

17. Phoenix ARC

18. Public Sector Bank

TABLE OF CONTENT

1. Executive Summary……………………………………………………………………………….04

2. Introduction…………………………………………………………………………………………07

3. Power Sector Trends……………………………………………………………………………...09

4. Realistic Power Demand………………………………………………………………………….14

5. Genesis Behind Stressed Power Assets………………………………………………………..19

6. IBC and NCLT Process…………………………………………………………………………...24

7. RBI Circular Dt 12th Feb 2018 and its Implications…………………………………………….27

8. How big is the issue of Stressed Power Assets………………………………………………..30


9. Resolution Experience…………………………………………………………………………....33

10. What Industry thinks and its Wish-List…………………………………………………………..36

11. Deesha Power Views on Revival………………………………………………………………...43

12. Value Unlocking Options…………………………………………………………………….........49

13. Annexure

o List of Stressed Projects…………………………………………………….....................56

o Abbreviations………………………………………………………………………………..58

o References…………………………………………………………………………………..59

o Deesha Power Profile……………………………………………………………………....60

• Executive Summary

• Introduction

• Power Sector Trends

• Realistic Power Demand

• Genesis Behind Stressed Power Assets

• IBC and NCLT Process


• RBI Circular Dt 12th Feb 2018 and its Implications

• How big is the issue of Stressed Power Assets?

• Resolution Experience

• What Industry Thinks and its Wish-list

• Deesha Power Views on Revival

• Value Unlocking Options

• Annexure

EXECUTIVE SUMMARY (1/2)

Executive Summary

Deesha Power's white paper aims at discussing issues and magnitude of stressedpower, stakeholder's views and our suggestions on way forward

• India is 3rd in terms of net generation and consumption of electricity globally

• Growth in conventional energy generation is going down at the expense of renewable

• Though official statistics show DD-SS gap of 1% only, in reality, the gap is ~10%; thanks to unscrupulous load shedding by DISCOMs

• Increase in economic activity and international pressure to reduce emissions mandates India to push for “24x7” carbon efficient super-critical technology

• Realistic power situation is likely to be benefitted by increase in demand, high tariff rates and improvement in health of DISCOMs

• India’s peak power demand is expected to reach 235 GW and 318 GW by 2022 and 2027 respectively

5

• India’s peak power demand is expected to reach 235 GW and 318 GW by 2022 and 2027 respectively

• Increasing price trend in power exchange compels DISCOMs to enter in Medium/Long-Term PPA

• With the reducing trend of gap between ACS-ARR, viability of Distribution sector is slowly improving

• Policy paralysis on feedstock front has contributed to issue of stressed power assets the most

• Financial position of DISCOMs has been the root cause of imminent stress in RE

• Easy availability of credit coupled with poor monitoring of asset quality aggravated issue of bad loans

• Effective implementation of IBC will lead to enhanced returns and global competitiveness

o Steel & Power cases are likely to resolve under IBC and NCLT mechanism in near future

• RBI has substituted the existing guidelines with a harmonized and simplified generic framework for resolution of stressed assets

o Nearly more than 75,000 MW capacity is likely to be affected by the new guidelines

• Level of stress is increasing in power sector on account of issues in generation and distribution

EXECUTIVE SUMMARY (2/2)

Executive Summary

As Is Sale, Sale to ARC, Sale to Financial Investor/Strategic Investor, NIIF Revival and Lender Revival could be value unlocking options

• Plants under construction that do not have PPA are unlikely to get out of stress easily

• Stakeholder’s inputs were sought through structured questionnaire

• Sector issues coupled with limited availability of options for disposal are main challenges for revival

• Execution of Resolution Plan is likely to face bottlenecks in the form of difficulty in raising funding and limited options of bidders

• Fear of vigilance actions coupled with banks with small exposures holding on to better deal are major bottlenecks for drivingrevival proceedings by banks

• RBI’s circular dt. 12th February 2018 will prompt deal flow but absence of revival ecosystem could choke its speed

• Adopting patient approach for absorbing losses arising out of restructuring coupled with sectoral reforms in discoms could help in

6

• Adopting patient approach for absorbing losses arising out of restructuring coupled with sectoral reforms in discoms could help in long turn

• Low hanging fruits may be identified and an exercise to develop asset specific strategy needs to be undertaken

• NIIF, along with CPSU, could take decisive steps for resolution of stressed capacity

• Old , inefficient and environmentally non-compliant capacity may be retired on priority

• Mechanism needs to be developed to ensure revivable stressed capacity is put to use

• Antidumping duty , so collected from Chinese imports, could be used for establishing viability of domestic solar manufacturing capacity

• As Is Sale, Sale to ARC, Sale to Financial Investor/Strategic Investor, NIIF Revival and Lender Revival could be value unlockingoptions

• Selling asset without any value addition would attract steep discount from the buyer

• Resolution strategy may depict realistic value unlocking options related to stressed project

o Executive Summary

• Introduction












• Annexure

INTRODUCTION

Introduction

Deesha Power's white paper aims to bring all stakeholders of stressed power assets together for a common theme of resolution

• Post RBI circular on 12th Feb, 2018 on resolution of stressed assets, gross NPAs are expected to grow to the

north of ₹9 Trillion.

• Power sector, which has been significant contributor, is expected to lead new additions to NPA list

• Stress level in Indian power sector has reached to alarming level on account of variety of reasons such as fuel

policy related issues, poor health of DISCOMs, no new Long Term power purchase, poor planning w.r.t

8

matching supply with demand, moderation in industrial demand, etc.

• Eminent stress is visible in renewable segment along with the conventional sources

• Through this white paper, it is a humble attempt of Deesha Power to offer a common platform to debate and

discuss the issues pertaining stressed power assets among the stakeholders and bring them together for a

common theme of resolution

• This white paper covers power sector trends, realistic power demand, genesis behind the stress & how big it

is, policy Issues and experience so far, what industry thinks and its wish-list and Deesha Power views &

options for value unlocking

NPA – Non Performing Assets, GDP – Gross Domestic Product, DISCOMs – Distribution Companies, RBI – Reserve Bank of India

o Executive Summary

o Introduction












• Annexure

INDIA VS GLOBAL ELECTRICITY GENERATION & CONSUMPTION

Power Sector Trends

• India is ranked at 3rd position globally in terms of net

generation and consumption of electricity

• World electricity demand increased by 3.1% in

2017. Together China & India accounted for nearly

India is 3rd in terms of net generation and consumption of electricity globally

6.25 6.3

Global Electricity Generation & Consumption (TUs)

Comments

10Source: Deesha Power Research; TUs – Trillion Units

2017. Together China & India accounted for nearly

70% of growth

• Global energy demand increased by 2.1% in 2017,

out of which China & India accounted 40%

• Renewables saw the highest growth rate among all

sources in 2017, which was led by USA & China

(almost 50%), followed by European Union, India

and Japan

4.01

1.19

3.68

1.2

CHINA USA INDIA

Net Generation Consumption

Growth in conventional energy generation is going down at the expense of renewable

INDIA’S GENERATION GROWTH STORY

Power Sector Trends

23.9

20.6

Generation Growth Pattern of Conventional & Renewable Energy (%)

Hydro10%

Nuclear3%

Renewable7%

Generation Mix in 2017

11Source: Ministry of Power CEA, * - till Dec-2017

6

8.4

5.64.7

3.80 0

6.4

2013-14 2014-15 2015-16 2016-17 2017-18*

Conventional Gen. growth Renewable Gen. growth

Thermal80%

Total Generation in 2017 – 1,282 BUs

BUs – Billion Units

Though official statistics show DD-SS gap of 1% only, in reality, the gap is ~10%; thanks to unscrupulous load shedding by DISCOMs

TRENDS

Reducing Demand-Supply

Gap (%)Trend

Reducing PLF (%)

Villages Electrified (‘000 Nos.)

10%75%

595

Losses of Discoms ($Billion)

6

Power Sector Trends

12

Power generation utilities are

getting back down instructions

Impact

Partial load operation is a

new norm

Immediate increase of power demand

1%

2011 2017

Details

63%

2011 2017

551

2011 2017

Source: Primary & Secondary Research by Deesha Power

Without UDAY the figure would have

touched $10.5 Billion

4

2011 2017

UDAY – Ujjawal Discom Assurance Yojana

Increase in economic activity and international pressure to reduce emissions mandates India to push for “24x7” carbon efficient super-critical technology

PESTLE ANALYSIS

Power Sector Trends

Political

Astute leadership committed to reforms

Government ability to take

Economical

GDP growth projections by multilateral agencies to be

greater than 7%

Low interest regime –good

Social

Employment Potential

Increase in developmental

13Source: Primary & Secondary Research by Deesha Power

Government ability to take right calls

Low interest regime –good sign for infra funding

Increase in developmental opportunities

Technical

Carbon efficient generation technologies

Inclusion of frequency controlled generation for

better discipline

Legal

Impending labor law amendments

International responsibility to reduce emissions

Environmental

Possible closure of environmentally non-

compliant & inefficient TPPs

Strict implementation leading to stringent

monitoring & operations

TPP – Thermal Power Plant

o Executive Summary

o Introduction

o Power Sector Trends











• Annexure

Realistic power situation is likely to be benefitted by increase in demand, high tariff rates and improvement in health of DISCOMs

DRIVERS OF POWER DEMAND

Realistic Power Demand

Increase in economic activities

15Source: Analysis by Deesha Power

High MCP at exchange

Financial Health of DISCOMs

PPA – Power Purchase Agreement

India’s peak power demand is expected to reach 235 GW and 318 GW by 2022 and 2027 respectively

INDIA’S PROJECTED POWER DD

235

318

India Peak Power Projections (GW) Comments

• As per draft National Electricity Plan,

demand projections have been carried out

using 4th and 3rd degree regression

modelling7%

6%


16Source: Draft National Electricity Plan

170

235

FY17 .. FY22 . FY27

modelling

• Demand projection take into account

impact of various EE/DSM measures to the

extent of 9 GW and 12 GW for FY22 and

FY27 respectively

• Further, the projections have been

estimated with gradual shift of CPP

demand to utility demand owing to better

quality of power supply

7%

DSM – Demand Side Management, EE – Energy Efficiency, CPP – Captive Power Plant

TARIFF RATE


Increasing price trend in power exchange compels DISCOMs to enter in Medium/Long-Term PPA

3

3.5

4

4.5

35

40

45

50

Cleared Volume & MCP at IEX

• Market Clearing Prices (MCP) at IEX is

showing an increasing trend since 2016

• Exchange price above ₹3.5/kWh makes it

Comments

Threshold Price

17Source: IEX, Secondary Research by Deesha Power

0

0.5

1

1.5

2

2.5

0

5

10

15

20

25

30

2015-16 2016-17 2017-18 2018-19 (YTD)

Cleared Volume (BUs) MCP (₹/kWh)

• Exchange price above ₹3.5/kWh makes it

difficult for DISCOMs as it pushes weighted

average cost of power purchase to the north of

₹5/kWh, with burden of fixed charge payments

• It is beneficial for DISCOMs to enter in

Medium/Long-Term PPAs with power

producers to avoid the uncertainty of open

market prices

IEX – Indian Energy Exchange

HEALTH OF DISCOMS


With the reducing trend of gap between ACS-ARR, viability of Distribution sector is slowly improving

1.271.19

1.06

1.2

1

1.2

1.4

Trend in Gap ACS-ARR (₹/kWh)

• Total energy billed by DISCOMs increased by 9% in from FY16 to FY17, indicating considerable growth in consumption, Earlier it was 5-6%

• Overall billing efficiency has been increased from 81% in FY16 to 83% in FY17

Comments

18Source: PFC, Annual Report of Ministry of Power 2017-18;

0.6

0.43

0

0.2

0.4

0.6

0.8

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Gap ACS-ARR

from 81% in FY16 to 83% in FY17

• A total of 19 states have increased there Tariff either in FY16 or FY17 which has resulted in additional revenue of ₹100 Billion. in FY16 to ~ ₹204.27 Billion in FY17.

• Under UDAY – ₹2.69 Trillion is to be restructured through issuance of bonds, out of which 87% have been issued

o Financial losses of UDAY states is reduced from ₹493.83 Billion in FY16 to ₹371.17 Billion in FY17

ACS – Average Cost of Supply, ARR – Average Revenue Realized

o Executive Summary

o Introduction


o Realistic Power Demand










• Annexure

Feedstock uncertainty, irrational exuberance of project proponent & lenders and moderation in industrial demand were some the reasons for stressed power

REASONS BEHIND STRESSED POWER ASSETS

Feedstock Uncertainty

Easy availability of Credit

Financial Position of Discom

� Coal block cancellation� Gas availability

� Reckless lending � Mounting losses

Genesis behind Stressed Power Assets

20Source: Primary & Secondary Research by Deesha Power

Reasons behind Stressed Power Assets

Moderation in Power Demand

Poor Project Planning

� Reckless lending� Poor monitoring � Increasing payables

� Dwindling industrial activities� Irrational load shedding

� Lack of experience� No real off-taker analysis

Policy paralysis on feedstock front has contributed to issue of stressed power assets the most

FEEDSTOCK ISSUES

Coal

• Coal blocks were de-allocated after the Supreme Court judgement of 24th September 2014

• Pursuant to directives from Ministry of Coal (MoC), the tapering FSAs have been ceased

• Thanks to special efforts like SHAKTI, coal availability has increased. However, in absence of firm mine allocation, TPPs are deprived from getting consistent coal quality with optimum landed cost

• There have been issues related to recovery of higher landed cost. On account this plus weak financial status of discoms, receivables position of TPPs have reached to alarming level

• States have been given allocation of coal mines. But there is hardly any visible progress to


21Source: Analysis by Deesha Power;

*GUVNL has contracted 500MW under tolling arrangement with GMR Chhattisgarh

Gas

• States have been given allocation of coal mines. But there is hardly any visible progress to experiment tolling arrangement (except Gujarat*) for converting this coal into affordable electricity for all

• Erratic production and last mile connectivity issues in coal transportation resulting in insufficient supply of coal, which needs urgent attention

• Unlike coal, availability is a serious issue associated with gas as a feedstock

• Availability at source and lack of pipeline infrastructure have worsened situation

• Landed gas pricing upwards of USD 8-10/mmbtu makes LNG unviable option

• On account of the same, gas based capacity in India (~18 GW) is facing serious challenges

Financial position of DISCOMs has been the root cause of imminent stress in RE

SPECIFIC TO RENEWABLE SECTOR


• Financial health of discoms resulting in delay of payments

• Land and related political intervention

• Aggressive competitive bidding

Wind & Solar


• Uncertainty in feedstock availability

• Price fluctuations

• Tariff unviability

Biomass

• Clearances issues

• Delay in project that causes cost over-run

• Floods/sedimentation/desilting

Small Hydro

Easy availability of credit coupled with poor monitoring of asset quality aggravated issue of bad loans

CREDIT AVAILABILITY

Comments


26%27%

26%

YoY Growth in Gross Bank Credit (%)

• Thanks to artificial low rates by Fed in US,

easy money was available from abroad

• Power sector attracted certain pie

• Higher than normal access of credit to power

23Source: RBI Handbook of Statistics on Indian Economy and Analysis by Deesha Power

15% 4%

-9%

15%

13%

3%

-2%FY13 FY14 FY15 FY16 FY17

Power Industry

• Higher than normal access of credit to power

sector was observed in FY11, FY13 & FY15

• Combined impact, power sector lending sky

rocketed

• Existing monitoring failed to give warning bells

once problem started

• Many a times, project progress facts were

misrepresented

• Tight monitoring could have reduced severity

of bad loan issue by atleast 30-40%

o Executive Summary

o Introduction



o Genesis Behind Stressed Power Assets









• Annexure

IBC 2016 and NCLT Process

Effective implementation of IBC will lead to enhanced returns and global competitiveness

Banks

CorporatesCreditors

• Potential release of capital locked up in NPAs over medium term

• Enhance Creditor’s Rights; More ‘skin in the game’ for promoter

• Foster innovation and entrepreneurship

IBC INTRODUCTION


Insolvency &

Bankruptcy Code (IBC)

Economy

Bond Markets

ARCs

• ARCs can churn capital faster and enhance returns

• Predictable recovery process enhances investor confidence

• Deepen the corporate bond market beyond AA category

• Improve rankings of “Ease of doing business” and global competitiveness

ARC – Asset Reconstruction Company, NCLT – National Company Law Tribunal

IBC 2016 and NCLT Process

Steel & Power cases are likely to resolve under IBC and NCLT mechanism in near future

S.No Company SectorClaims Admitted

(₹ Crores)180 days Period

ends onCurrent Status of CIRP

1 Alok Industries Textiles 29,912 14-01-2018 Applied for ext. of 90 days

2 Amtek Auto Ltd. Auto Component 12,586 20-01-2018 Applied for ext. of 90 days

3 ABG Shipyard Ltd. Ship Building 18,539 28-01-2018CoC approved ext. of 90

days

4 Bhushan Steel Ltd. Steel 55,989 22-01-2018 In process

LIST OF DEFAULTERS BY RBI

26Source: IBBI

5 Electrosteel Steels Ltd. Steel 13,302 16-01-2018 Ext. up to 17-04-2018

6 Essar Steel Ltd. Steel 50,778 29-01-2018 Applied for ext. of 90 days

7 Jyoti Structures Ltd.Power

Transmission8,078 31-12-2018 Ext. up to 31-03-2018

8 Jaypee Infratech Ltd.Infrastructure Development

13,322 04-02-2018 Applied for ext. of 90 days

9 Lanco Infratech Ltd. Power Generation 51,505 03-02-2018 Applied for ext. of 90 days

10 Monnet Ispat & Energy Ltd Steel 10,412 13-01-2018 Applied for ext. of 90 days

11 Bhushan Power & Steel Steel & Power

Generation48,524 22-01-2018

Applied for ext. of 90 days

CoC – Committee of Creditors, CIRP – Corporate Insolvency Resolution Process

o Executive Summary

o Introduction




o IBC and NCLT Process








• Annexure

RBI Circular Dt 12th February 2018 and Its Implications

RBI has substituted the existing guidelines with a harmonized and simplified generic framework for resolution of stressed assets

Reporting of stressed assets to CRILC on Monthly Basis

Lenders to have policy for time bound resolution plan for stressed

assets

• Banks (singly or jointly) are required to initiate steps to cure default as soon as there is default

• Resolution Plan will involve – regularization of payments, sale of exposure, restructuring, change of ownership etc.

• Lenders shall report credit information of borrowers (≥ ₹ 50 million) to CRILC on monthly basis w.e.f April 1,2018.

RBI CIRCULAR ON RESOLUTION OF STRESSED ASSETS

28Source: Analysis by Deesha Power, RBI

Timelines for large accounts under IBC (Exposure of Lenders at ₹ 20

billion and above)

Criteria for upgradation of NPAs to Standard Assets

Stringent supervision & increased disclosures by lenders

• Default as on reference date – 180 days from reference date• Default after the reference date – 180 days from first such default• For exposure below ₹ 20 billion and above ₹1 billion - 2 years

• For large accounts (≥ ₹ 1 billion) – satisfactory performance + Credit Rating of BBB-

• Accounts below ₹ 5 billion require 1 such rating & above ₹ 5 billion require 2 ratings

• Any failure by lenders in meeting prescribed timelines will be subjected to stringent action by RBI, including but not limited to higher provisioning on such accounts and monetary penalties

CRILC - Central Repository of Information on Large Credits

RBI Circular Dt 12th February 2018 and Its Implications

Nearly more than 75,000 MW capacity is likely to be affected by the new guidelines

Risk for Investors

New guidelines majorly disincentivise any loan re-structuring and push for sale or change of control for any stressed entity raising risk for developers and equity investors

Quantum of Power to be affected

More than 51GW of existing power capacity & 28GW under construction to be severely impacted

IMPLICATION ON INDIAN POWER SECTOR


Effect on Debt

Likely Debt haircut of 35%, given the issues arising out of cost over-run, unviable Tariffs & lack of PPAs

Sectoral issues affecting debt repayment capacity:

• Power producers had to pre-pay for fuel supply whereas bill receivable have time period ranging from three to four months

• Coal India supplies only 60% of coal required to supply power under long-term PPA while additional procurement by e-auction is not compensated by distribution companies. These needs approval, which is at times delayed

o Executive Summary

o Introduction






o RBI Circular Dt 12th Feb 2018 and its Implications






• Annexure

Level of stress is increasing in power sector on account of issues in generation and distribution

MAGNITUDE OF POWER NPA

How big is the issue of Stressed Power Assets?

GNPAs & Restructured Standard Advances (₹ Trillion)

• NPAs have increased from 17.3% to 17.7% in 3

months time period

• Transmission segment have shown decline in

Comments

Gross Loan (₹ Trillion)

5.48 5.59

31Source: RBI and Standing Committee on Energy Report

0.340.38

0.61 0.61

2017 MARCH 2017 JUNEGNPA RSA

total stress from ₹56.86 Billion to ₹30.5 Billion.

• In case of generation segment, NPA has

increased from ₹842.6 Billion to ₹898 Billion

• Distribution segment has also shown an

increasing trend i.e. ₹53.7 Billion to ₹59.48

Billion on account of increasing Restructured

Standard Advances (RSA)

Plants under construction that do not have PPA are unlikely to get out of stress easily

MAGNITUDE OF STRESSED POWER NPA

How big is the issue of Stressed Power Assets?

Commissioned Under-Construction Total

21 13* 34Number of Plants

Stressed TPP Capacity (GW)

32Source: RBI and Standing Committee on Energy Report

PPA66%

Non PPA34%

PPA10%

Non PPA90%

PPA44%

Non PPA56%

Total Outstanding Debt (₹ Billion)

1,039 722 1,761

(GW)

PPA Status (% capacity contracted)

*includes 4 partially commissioned plants. Please refer Annexure 1 for list stressed 34 coal based TPPs

o Executive Summary

o Introduction







o How big is the issue of Stressed Power Assets?





• Annexure

Resolution Experience - NCLT

Electrosteel Steel is first to be resolved under IBC and NCLT mechanism

Electrosteel case first resolution under IBC as NCLT approves Vedanta bid

• NCLT’s Kolkata bench approved Vedanta Ltd.'s resolution plan for Electrosteel Steels

Ltd.

• Vedanta have received the “Letter of Intent” and has confirmed to accept the terms

outlined in it

RESOLUTION BASED ON LEGAL TERMS


Edelweiss ARC took majority stake in Adhunik Power stake sale

• JLF led by State Bank of India sold loan of ₹28 Billion in 15:85 (Paid Cash:Security

Receipts) structure

• Now Edelweiss ARC is a majority stakeholder with ~30% equity

• This is first comprehensive resolution through a successful SDR deal

Resolution Experience - MoP

SHAKTI Scheme is helping plants to get coal linkages to stressed capacity where PPAs have been signed

RESOLUTION BASED ON OPERATIONAL TERMS

SHAKTI Scheme • There were 8 plants out of 34 stressed plants

which were having PPAs but required coal

linkages

Scheme to Harness and Allocate Koyla (Coal) Transparently in India;

• It will give Long-Term contracts to power

35Source: Standing Committee Report

• Cumulative capacity of 8 plants was 12,630MW,

out of which 9,150 MW was without coal linkage

• These plants are in a process to get coal linkage

from Coal India Ltd. (CIL) under SHAKTI scheme

and will be out of stress

• It will give Long-Term contracts to power

companies

• Allocation of linkages for power sector shall be

based on auction of linkages or through PPA

based on competitive bidding

• Coal drawl will be permitted against valid Long-

Term PPAs and to be concluded Medium-Term

PPAs

o Executive Summary

o Introduction








o Resolution Experience




• Annexure

Stakeholder’s inputs were sought through structured questionnaire

Execution of Resolution Plan

Challenges for Revival

Stakeholder

STAKEHOLDER VIEWS (1/6)

What Industry Thinks and its Wish-list

37

Constructive Suggestions

RBI Circular Dt 12th February 2018

Lender Mindset

Stakeholder Consultation on

Value Unlocking Options for Stressed

Power Assets

Sector issues coupled with limited availability of options for disposal are main challenges for revival

STAKEHOLDER VIEWS – CHALLENGES FOR REVIVAL (2/6)

6%

66%A. Sectoral Issues (PPA, FSA, OA, Health of discom)

B. Execution difficulties during revival process

Options Opinions


38Source: Primary Interaction and Analysis by Deesha Power

6%

6%

17%C. Limited availability of options for disposal

D. Lack of resolution plan/strategy for revival of specific project

E. Others-

• Shrinking population of bidders

OA – Open Access

Execution of Resolution Plan is likely to face bottlenecks in the form of difficulty in raising funding and limited bidders

STAKEHOLDER VIEWS - EXECUTION OF RESOLUTION PLAN (3/6)

A. Difficulty in raising funding (capex & WC) for

revival

Options Opinions

31%


39

B. Maintaining promoter cooperation

C. Availability/continued support of OEM/Contractors/Sub-

contractors

D. Any other, please specify – Limited Options of

Bidders

19% 19%

31%

A B C D

Source: Primary Interaction and Analysis by Deesha Power

Fear of vigilance actions coupled with banks with small exposures holding on to better deal are major bottlenecks for driving revival proceedings by banks

STAKEHOLDER VIEWS - LENDER MINDSET (4/6)


A. Fear of regulatory/vigilance actions............................................................................

B. Lead lender, with support of consortium members, not exercising step-in…………….

Options Opinions

39%

22%

40

rights/equity control to drive project

C. Policy difference w.r.t stress identification…………………………………………………

D. Banks with smaller exposure holding on for better deal…………………………………

E. Any other, please specify( Ability to take large haircuts)…………………………………

3%

28%

8%


RBI’s circular dt 12th February 2018 will prompt deal flow but absence of revival ecosystem could choke its speed

STAKEHOLDER’S VIEWS - RBI CIRCULAR DT 12TH FEBRUARY 2018 (5/6)


Pluses

1. NPA declaration – procedural & inevitable prompting resolution

2. Deals will happen – majority through NCLT or sometime before

refereeing to NCLT if lenders get lucrative offer

3. Good for investors – financial as well as strategic

41

4. Major boost in “Ease of Doing Business” prompting foreign investments

Pauses

1. Consent of 100% of CoC members for RP

2. Absence of revival ecosystem

3. Financial Investor not accepted as Promoter

4. Absence of phased and calibrated approach for

implementation

5. Lack of carrot; only stick approach


Adopting patient approach for absorbing losses arising out of restructuring coupled with sectoral reforms in discoms could help in long turn

STAKEHOLDER’S VIEWS - CONSTRUCTIVE SUGGESTIONS (6/6)

CEO, ARC

• Give more time to banks ( say 4-8 quarters) to absorb losses arising of actions (restructuring, sale of asset etc ) to revive the unit. This will enable them to realise more value and find meaningful solution

• Address issues related to distribution sector, like discoms, Open access

CEO, ARC

• Give more time to banks ( say 4-8 quarters) to absorb losses arising of actions (restructuring, sale of asset etc ) to revive the unit. This will enable them to realise more value and find meaningful solution

• Address issues related to distribution sector, like discoms, Open access

SVP, I-bank

• Provide more flexibility for lender haircuts and a better defined approach where there is serious emphasis on completing resolution plans and revival of companies before reaching NCLT.

SVP, I-bank

• Provide more flexibility for lender haircuts and a better defined approach where there is serious emphasis on completing resolution plans and revival of companies before reaching NCLT.


42

emphasis on completing resolution plans and revival of companies before reaching NCLT.

• Number of cases going to the NCLT should be greatly reduced and aims should be on resolution outside NCLT

emphasis on completing resolution plans and revival of companies before reaching NCLT.

• Number of cases going to the NCLT should be greatly reduced and aims should be on resolution outside NCLT

CEO, IPP

• Retire environmentally non-compliant capacity

• State Gencos backed by respective Govt, in view of their aging capacities, could consider taking equity in stressed projects

CEO, IPP

• Retire environmentally non-compliant capacity

• State Gencos backed by respective Govt, in view of their aging capacities, could consider taking equity in stressed projects

Partner, Infra Fund

• NIIF along with NTPC and BHEL could identify 10 GW capacity with intent of revival

• Special MT/LT power purchase or Tolling programs by discoms targetting stressed capacities

Partner, Infra Fund

• NIIF along with NTPC and BHEL could identify 10 GW capacity with intent of revival

• Special MT/LT power purchase or Tolling programs by discoms targetting stressed capacities


o Executive Summary

o Introduction












• Annexure

Low hanging fruits may be identified and an exercise to develop asset specific strategy needs to be undertaken

DEESHA POWER VIEWS (1/5)

Stranded Capacity :

Completion Check

� Commissioned

Filter 1

Commercial Check

� State CoPP >

Filter 2

Technical Check

� Approvals

Filter 3

Filtered Capacity:

Deesha Power Views on Revival


Capacity :

50-60 GW

� Commissioned

� Near completion (construction >80%)

� State CoPP > ₹4.5/kWh

� Aging fleet

� State DD-SS gap

� Approvals

� Coal & Water

� Evacuation

Capacity:

10-15 GW

Asset specific strategy needs to be developed for filtered capacity

NIIF, along with CPSU, could take decisive steps for resolution of stressed capacity



NIIF Banks

BHEL


Filtered Capacity:

10-15 GW

Resolution Management Office NTPC

State Discom

CIL

Money flow

Solutions flow

Old , inefficient and environmentally non-compliant capacity may be retired on priority



TPP Life Stage Indicative Age (Years) Capacity (GW) Strategy

Exceeded Operational Life

>25 ~30 Retire/close down


Exceeded Mid life but not operational life

15-25 ~25Focus on Efficiency Gains and

Environmental Retrofits

Yet to Reach Midlife <15 ~135Closely monitor and identify next

slot

Retired capacity may create some room for stressed capacity to come on stream!

Mechanism needs to be developed to ensure revivable stressed capacity is put to use



TOLLING

DEEP

• Allocate nearby stressed capacity for conversion of state allocated coal in to power

• Fuel to power arrangement (~₹1.3 to ₹1.5/kWh)

• Gujarat model could be an example

• Demand aggregation through DEEP portal


DEEP

SECI

through DEEP portal• MT power purchase for

stressed capacity• Competitive price discovery

through reverse auction

• New category -24 hr of power procurement comprising of 6 hr of solar and 18 hrs of conventional power

• Such blended power procurement through SECI

Antidumping duty , so collected from Chinese imports, could be used for establishing viability of domestic manufacturing capacity

CONSTRUCTIVE SUGGESTIONS (5/5)

India Module Sourcing (%) Comments

• India is importing modules worth ~10GW (90%

from China) or USD 3 billion @ 30 cents/Wp

• GoI is contemplating ADD @ 7.5% on imports

resulting annual collection of ~USD 225 million or


Domestic9%


resulting annual collection of ~USD 225 million or

Rs 1,500 Cr

• GoI can use this amount to give

energy/water/debt subsidies

• Anything more than 7.5% ADD would kill solar

industry in India

• While proposing ADD, they may exclude project

under construction and have already signed PPA

Import91%

Annual Demand: 11 GW

o Executive Summary

o Introduction









o What Industry Thinks and its Wish-list

o Deesha Power Views on Revival


• Annexure

As Is Sale, Sale to ARC, Sale to Financial Investor/Strategic Investor, NIIF Revival and Lender Revival could be value unlocking options

VALUE UNLOCKING OPTIONS (1/4)

Value Unlocking Options

As Is Sale

• Sale without any value addition

• At the max attract distress value depending upon level of project completion

Sale to ARC

• Sale entire loan portfolio to ARC

• No value addition may result into significant discount while bidding

• Sale to financial investor or strategic investor or the combination of two


Sale to FI/SI

• Sale to financial investor or strategic investor or the combination of two

• Revival plan from FI/SI may reflect in bid value

NIIF Revival

• Consortium of NIIF, NTPC and BHEL takes over identified assets on behalf of lenders• Complete/revive the project and then sale it to strategic investors

Lender Revival

• Consortium of lenders appointing EPCM + Commissioning + O&M Operator to complete/revive the project depending on level of construction completion/resources to revive

• Complete/revive the project and then sale it to strategic investor

In all above mentioned options, preparation of project specific realistic revival strategy is must!

NIIF – National Investment and Infrastructure Fund, NTPC – National Thermal Power Corporation, BHEL – Bharat Heavy Electricals Limited

Selling asset without any value addition would attract steep discount from the buyer

VALUE UNLOCKING OPTIONS (2/4)

Pros Cons

As Is Sale Expeditious recovery of partial dues Lowest possible realization

I


Sale to ARC “Clean” sale from vigilance perspective ARCs to possibly buy at heavy discount

II


Sale to FI/SI

Marginally better recovery than Option I & II Deep discount may continue

III

NIIF RevivalAsset valuation improves considerably as

compared to 1st three options Moderate Financial Engineering + Additional lending to complete the project

IV

Lender Revival

Best recovery option

V1. Lending for revival2. Exposure to various revival risk

Resolution strategy may depict realistic value unlocking options related to project

HIGH LEVEL RECOVERY PROSPECTS (3/4)


Optimal Zone

40-60%

50-70%


Option I: As Is Sale Option II: Sale to ARC Option III:Sale to SI/FI Option IV:NIIF Revival Option V: Lender Revival

5-10%

Suboptimal Zone

10-15%

15-25%

Project specific financial model is must estimate realistic recovery options!

Deesha Power has been adding value for decsion making relating to stressed power

through on the ground assessment of techno-comercial aspects

HIGH LEVEL RECOVERY PROSPECTS (4/4)


Pre-investment Post-investment

Realistic Demand Assessment

53

Primary Interaction Driven In-depth Secondary Analysis

Power Sale Tariffs & Landed Fuel Price

Plant Techno-Commercial Assessment

Resources to Revive

Bid ValueValue Unlocking

Options

Facilitate Strategic Decision

Making

Revival Strategy

o Executive Summary

o Introduction









o What Industry Thinks and its Wish-list

o Deesha Power Views on Revival

o Value Unlocking Options

• Annexure

Annexure List

1. List of Coal Based Stressed Projects

55

2. Abbreviations

3. References

4. Deesha Power Profile

List of Coal based Stressed TPPs (1/2)

S. No. Developer Project UnitCapacity

(MW)

1 Adani Korba West 1 600

2 Adhunik Power & Natural Resources Ltd. Mahadev Prasad TPP Ph-1 1&2 540

3 East Coast Energy Bhavanpadu 1&2 1,320

4 Athena Chhattisgarh Power (P) Ltd. Singhitarai 1&2 1,200

5 Avantha Power Jhabua Seoni, Jhabua 1 600

6 Essar Power (Mahan) Ltd. Mahan 1&2 1,200

7 Essar Power (Jharkhand) Ltd. Tori 1&2 1,200

Annexure - 1

56

7 Essar Power (Jharkhand) Ltd. Tori 1&2 1,200

8 GMR Energy (P) Ltd. Emco Warora 1&2 600

9 GMR Chhattisgarh Energy Ltd. Raikheda 1&2 1,370

10 GMR Kamlanga Energy Ltd. Kamalanga 1 to 3 1,050

11 GVK Industries Ltd. (Goindwal Saheb) Goindwal Saheb 1&2 540

12 Ind Barath Energy (Utkal) Ltd. Utkal 1&2 700

13 Jaypee Power Ventures Pvt. Ltd. (Bara) Bara 1 to 3 1,980

14 Jaypee Power Ventures Pvt. Ltd. (Nigrie) Nigrie 1&2 1,200

15 Jaypee Power Ventures Pvt. Ltd. (Bina) Bina 1&2 1,000

16 Jindal India Thermal Power Ltd. Derang 1&2 1,200

17 KSK Mahanadi Power Company Ltd. Akaltara 1 to 6 3,600

Source: Standing Committee on Energy Report

List of Coal based Stressed TPPs (2/2)

S. No. Developer Project UnitCapacity

(MW)

18 KVK Nilachal Power (P) Ltd. Nilachal 1 to 3 1,050

19 Lanco Lanco Amarkantak Power Ltd. 3 & 4 1,320

20 Lanco Lanco Anpara C 1&2 1,200

21 Lanco Lanco Vidarbha Thermal Power Ltd. 1&2 1,320

22 Lanco Lanco Babandh Power Ltd. 1&2 1,320

23 Madhucon Simhapuri Energy Ltd. (Ph-1&2) 1 to 4 600

24 Monnet Power Company Ltd. Malibrahmni 1&2 1,050

Annexure - 1

57

24 Monnet Power Company Ltd. Malibrahmni 1&2 1,050

25 Rattan India Nasik Power Ltd. Ph-1 Nasik TPP Ph-1 1 to 5 1,350

26 RKM Powergen Pvt. Ltd. Uchpinda TPP 1 to 4 1,440

27 SKS Power Generation (Chhattisgarh) Ltd. Binjkote TPP 1 to 4 1,200

28 Vandana Vidyut Ltd. Salora TPP 1&2 270

29 Visa Power Ltd. Deveri TPP 1&2 1,200

30 Damodar Valley Corporation Raghunathpur TPP 1&2 1,200

31 Kanti Bijli Utpadan Nigam Ltd. Mujaffarpur TPP 3 & 4 390

32 Adani Power Maharashtra Ltd. Tirora TPP Ph-1&2 1 to 5 3,300

33 Coastal Energen Private Ltd. Mutiara TPP 1&2 1,200

34 DB Power Ltd. Baradhra 1&2 1,200

Total 34,110

Source: Standing Committee on Energy Report

Abbreviations

A – F

ACS Average Cost of Supply

ARC Asset Reconstruction Company

ARR Average Revenue Realized

BHEL Bharat Heavy Electricals Limited

BUs Billion Units

G – U

GDP Gross Domestic Product

IEX Indian Energy Exchange

NCLT National Company Law Tribunal

NIIF National Infrastructure Investment Fund

NPA Non Performing Asset

Annexure - 2

58

CoC Committee of Creditors

CIRP Corporate Insolvency Resolution Process

CPP Captive Power Plant

CRILCCentral Repository of Information on Large Credits

DISCOMs Distribution Companies

DSM Demand Side Management

EE Energy Efficiency

FSA Fuel Supply Agreement

NTPC National Thermal Power Corporation

OA Open Access

PLF Plant Load Factor

PPA Power Purchase Agreement

RBI Reserve Bank of India

TUs Trillion Units

TPP Thermal Power Plant

UDAY Ujawal Discom Assurance Yojana

References

1. IEA Website

2. CEA website

3. PFC website

4. MoC website

5. CPCB website

6. IBBI website

Annexure - 3

59

7. MoP website

8. MoEF website

9. RBI website

10. CERC website

11. MoPNG website

12. IEA website

13. World bank website

DEESHA POWER:INTRODUCTION

Deesha Power is niche infra consulting and solutions organisation having focus on stressed power assets

Annexure - 4

Due-diligence

Strategy

• Techno-commercial due-diligence• Due-diligence for strategic M&A

takeover• Value Unlocking Options• Revival Strategy

• India Entry• Market Assessment

60

Strategy

Solutions

• Market Assessment• Competition Mapping• Cost Reduction• LT strategy formulation

• Drone Surveillance• Stressed Assets Value

Realization

SELECT INTERNATIONAL CLIENTS

Deesha Power has worked with number of international clients

Annexure - 4

61

SELECT DOMESTIC CLIENTS

Deesha Power has worked with reputed domestic clients and list is growing

Annexure - 4

62

“AAA” is USP of Deesha Power Solutions

USP OF SOLUTION

AssessOn the ground

Primary Interaction

Annexure - 4

63

AnalyzeTechnical and

Financial Aspects

ActionOriented inputs

AchieveDesired outcome

Secondary Research

Practical recommendations

Facilitate strategic decision making

Deesha Power has unparalleled understanding of power business

Annexure - 4

Interaction with C-level

executives to add realistic flavor

PRIMARY INTERCTION

Only consulting company using

Drones for On-the-ground

assessments of projects

DRONES

UNIQUE VALUE

64

Evaluation of stressed loans

~Rs 65,000+ Cr or in terms of

capacity ~10 GW

CREDENTIALS

Comprehensive database

Insights for Stressed Assets

� White Papers & Articles

KNOWLEDGE BASE

UNIQUE VALUE PROPOSITION

Thank You !

65

Shardul Kulkarni

MD & Chief Executive Officer

Mobile: +91 99308 50279

E-mail: [email protected]

Website: www.deeshapowersolutions.com

Deesha Power Solutions Pvt Ltd

Parinee Crescenzo, – 1003, G Block, Bandra Kurla Complex, Bandra East,

Mumbai, Maharashtra,400051

Documents

White Paper Value Unlocking Options for Stressed ...deeshapowersolutions.com/White Paper_Value... · • IBC and NCLT Process White Paper – Value Unlocking Options for Stressed